RENT — Q2 2026 Financial Report Analysis

Revenue grew 20.8% while the active subscriber base shrank 3.8% — the quarter was bought with price, not customers

Rent the Runway rents designer clothing to members on a monthly subscription ("Subscription"), rents individual items for one-off occasions ("Reserve"), and sells used rental items to customers at a discount ("Resale," reported as Other revenue). In the fiscal second quarter ended July 31, 2026, total revenue rose to $97.7 million from $80.9 million a year earlier, gross margin widened by roughly six percentage points, and Adjusted EBITDA nearly quadrupled. Underneath that, the company ended the quarter with fewer paying-and-active subscribers than it had a year ago. Essentially all of the revenue growth came from charging each subscriber more.

The numbers

Source: Rent the Runway 10-Q for the quarter ended July 31, 2026, filed September 11, 2026. The last row is calculated from the filing's disclosed figures, not a company-reported metric; it is a rough proxy because Reserve and Resale revenue can come from non-subscribers, though the company says subscribers generated 90% of total revenue in the first half while active or paused.

Where the growth actually came from

The company defines an "Active Subscriber" as a member with a live subscription on the last day of the period, excluding those who have hit pause. That count fell to 140,826 from 146,373. Management attributes the decline to "a year-over-year increase in the rate of pause and a year-over-year decrease in the number of subscribers acquired," partly offset by better retention and a larger starting base. Total Subscribers including paused members were roughly flat at 186,019 (+0.5%), which tells you the shrinkage is a pausing problem more than an outright churn problem — but paused members do not pay.

Against a subscriber base that is flat-to-down, revenue per Average Active Subscriber rose about 20%. The filing names the two levers directly: a Subscription price increase implemented in August 2025, and a new shipping charge added to Subscription plans in June 2026 "in response to increasing shipping costs from carriers." Management explicitly says it expects the shipping charge "to be temporary."

Resale added the rest. Other revenue of $13.9 million was up 18.8%, driven by "an increase in items purchased per Average Active Subscriber, higher average selling price per item and higher Average Active Subscribers" — that is, the same members buying more used garments at better prices, not a bigger audience.

Both of those growth engines have a shelf life. The August 2025 price increase stops flattering the comparison from fiscal Q3 2026 onward (the quarter ending October 31, 2026) because the prior-year quarter already contained it. The shipping fee is described as temporary by the company itself. Neither can repeat in fiscal 2027 without a fresh price action.

Why gross margin widened six points

The company's gross profit is revenue less two costs: fulfillment (shipping to and from customers, plus the labor to clean, repair and reprocess garments) and rental product depreciation and revenue share (the cost of the clothes themselves, either depreciated if owned or paid to brands as a share of rental income). It excludes technology, marketing and general and administrative costs.

Every one of those cost lines fell as a share of revenue, almost entirely because revenue rose rather than because spending fell:

• Fulfillment: $23.5M, up just 4.4% in dollars, but down to 24.1% of revenue from 27.8%. The filing is explicit that the dollar increase came from "higher transportation costs due to carrier rate increases and increases in warehouse processing costs," and the percentage improvement came from "higher revenue per order partially offset by higher transportation and processing costs per order." In other words, the unit economics of shipping a box got worse; the box just carried more revenue with it.
• Rental product depreciation and revenue share: $38.9M, up 14.1%, down to 39.8% of revenue from 42.2%. The mix inside this line moved sharply. The Adjusted EBITDA reconciliation shows depreciation of owned garments actually fell to $14.7M from $15.9M, which implies revenue-share payments to brand partners of roughly $24M versus roughly $18M — up about a third, and up to roughly 24.8% of revenue from 22.5%. This is the financial signature of the company's "Share by RTR" model, in which brands supply garments on consignment for little or no upfront payment and get paid out of rental performance instead. It converts an upfront capital outlay into a recurring operating cost.
• Operating expenses: technology ($9.8M) and marketing ($7.4M) were both flat in dollars, and G&A fell to $23.8M from $24.6M, a decline management attributes to prior-year costs "relating to the Recapitalization Transactions that occurred in July 2025." Combined, those three lines cost $41.0M versus $41.8M a year earlier — $0.8M less spending against $16.8M more revenue, or 42.0% of revenue versus 51.7%.

That is real operating leverage (fixed-ish costs spread over a bigger revenue base), and it is the most durable part of the quarter. It is also partly a function of the price increase that inflated the denominator.

Two items make the bottom line look better and worse than it is

The interest line is an accounting artifact. Net interest expense was $(0.2)M against $(6.9)M a year ago — a 97% drop that accounts for half of the entire net loss improvement. Almost none of that is a real reduction in the cost of debt. The October 2025 recapitalization, in which the lender swapped $100M of debt for new term loans and the rest for 26.2 million new shares, was accounted for as a troubled debt restructuring. That treatment records a premium on the debt which then amortizes as a credit to interest expense. The filing breaks the quarter's $(0.2)M down as $2.3M of debt premium amortization (a benefit) netted against $(2.7)M of paid-in-kind interest and $0.2M of other net interest. Paid-in-kind interest is not paid in cash; under the April 2026 Second Amendment it is capitalized and added to the loan principal through May 2027. The stated effective interest rate on the lender's term loans is 0.48% for accounting purposes and 9.63% on the separate $10M tranche held by two other investors. The debt is still growing, just quietly.

A litigation charge makes the quarter look worse. Net loss includes a $(6.1)M securities litigation expense from the September 3, 2026 settlement of the 2022 IPO class action (Sharma v. Rent the Runway), recognized in the quarter as a subsequent event. The total settlement is $9.0M — $6.0M cash plus $3.0M in stock — of which insurers fund about $2.9M, leaving roughly $6.1M to the company. Excluding it, net loss would have been about $(6.8)M. A court hearing for final approval is set for December 15, 2026. Adjusted EBITDA also excludes $1.8M of costs for the CEO and Executive Chair transitions.

Per-share figures are not comparable. The $(0.38) loss per share versus $(6.23) reflects a weighted-average share count of 33.6 million versus 4.2 million — about eight times more shares — because the recapitalization issued 26.2 million new Class A shares to the lender. The loss per share improved mainly because the denominator exploded. The investor group now holds 84% of the voting power.

What Adjusted EBITDA leaves out

Adjusted EBITDA of $12.6 million (12.9% of revenue) sits against a GAAP operating loss of $(7.8)M. The largest single bridge item is $14.7M of rental product depreciation. For a business whose product is the rented clothing, writing that cost out of the profit measure removes the cost of the core asset being consumed. The measure is useful for comparing operating leverage period to period, and it is moving in the right direction — but a company that reports 12.9% Adjusted EBITDA margins and a 13.2% net loss margin in the same quarter is not yet profitable in any conventional sense.

Takeaway: The 20.8% revenue growth and the six-point gross margin gain are almost entirely price-driven against a subscriber base that shrank 3.8% year over year — and the two price levers responsible (the August 2025 subscription increase and a June 2026 shipping charge the company itself calls temporary) both stop helping the year-over-year comparison from fiscal Q3 2026 onward. The operating leverage is real and repeatable; the revenue growth rate that produced it is not.

Cash: still consuming, and still borrowing

Cash and cash equivalents were $29.0 million at July 31, 2026, down from $50.4 million at the January 31, 2026 fiscal year end and from $43.6 million a year earlier. Restricted cash adds $8.2 million.

Over the first six months, operating activities used $(5.0)M and investing used $(16.6)M, for combined cash consumption of $(21.6)M — better than the $(32.9)M a year earlier, but driven by a deliberate pullback in buying: purchases of rental product fell to $27.7M from $42.0M after the company roughly doubled garment purchases in fiscal 2025.

Note the disconnect: the six-month net loss improved by $20.7M ($(31.8)M versus $(52.5)M) while operating cash flow got worse ($(5.0)M versus $(2.2)M). The reason is that much of last year's larger loss was non-cash. Non-cash add-backs fell to $36.0M from $47.1M, as paid-in-kind interest dropped to $5.4M from $7.2M and debt discount amortization flipped from a $3.0M add-back to a $(4.5)M deduction, and working-capital movements contributed only $4.1M this year versus $15.0M last year. The recapitalization improved the reported loss considerably more than it improved cash generation.

The balance sheet remains stretched: total assets of $192.4M against $257.9M of liabilities, a stockholders' deficit of $(65.5)M, an accumulated deficit of $(1,132.2)M, and $157.5M of long-term debt maturing October 2029. The filing states there is no remaining borrowing availability under the credit agreement — and then discloses a third amendment signed September 1, 2026 providing another $10.0M of term loans from the investor group "to support the Company's working capital needs." That is the third amendment to this facility in eight months, after the January 2026 removal of the minimum liquidity covenant and the April 2026 amendment allowing interest to be capitalized rather than paid in cash. Management states it expects existing resources to be sufficient for at least twelve months, and says it "plans to explore additional funding sources." The company also notes its public float is under $75 million, which caps what it can sell off its $40 million shelf registration to one-third of that float in any twelve-month period.

Strategy and outlook

The 10-Q gives no numeric guidance, but it does give direction:

• Revenue is expected to increase in fiscal 2026 "due to higher Subscription prices and a larger Subscription customer base due to a particular focus on increasing our Active Subscribers year-over-year." That second half is the open question — active subscribers went the wrong way this quarter.
• Costs as a share of revenue are expected to fall for technology, marketing and G&A; marketing dollars are expected to rise. Capital spending on rental product is expected to be lower than fiscal 2025, with a larger share of garments coming through the capital-light Share by RTR and Exclusive Designs channels.
• Cash is expected to decline over fiscal 2026 as the company continues investing in the customer experience.
• Focus has been narrowed. The company paused its online marketplace pilot until it can be integrated with core rental, paused on-site advertising and monetization, and stopped pursuing new B2B dry-cleaning business. Resources move to rental and resale, including Reserve, which management says carries its highest satisfaction scores.
• AI features shipped. Outfit generation went live to all customers by the end of June; the company reports roughly 35% engagement in the app and says pilot users added items to their bag about 12% more often. Avatars rolled out in August, with virtual try-on in pilot. These are retention tools aimed squarely at the pause problem, but no subscriber impact is quantified.
• New CEO. Paige Thomas was appointed CEO effective September 14, 2026 — three days after this filing. Interim CEO Jennifer Bariquit becomes non-executive Chair, and Dhiren Fonseca steps down as Executive Chairman.

Our read. The cost side of this business is genuinely better than a year ago: fulfillment and operating expenses are being spread over more revenue, capital intensity is coming down as garment sourcing shifts to consignment, and Adjusted EBITDA margin of 12.9% is the clearest evidence yet that the unit economics can work at scale. But the quarter's headline growth rate is not a demand signal. A company that raises prices, adds a shipping fee, and still ends the period with 3.8% fewer paying subscribers is monetizing a shrinking base, and the year-over-year arithmetic that made this quarter look strong reverses starting next quarter when the August 2025 price increase laps.

The sequence to watch in fiscal Q3 (quarter ending October 31, 2026) is therefore narrow and specific: does the ending Active Subscriber count stop falling, and does revenue growth hold up once the price comparison normalizes and if the shipping surcharge is withdrawn as promised? Fall is historically one of the company's two strongest acquisition windows, so Q3 is a fair test. If subscribers stabilize while the cost leverage holds, the path to breakeven is credible. If subscribers keep declining, the company will have spent its pricing headroom without fixing the demand problem, and the $10M September top-up from its controlling lender will not be the last one it needs.